What Do the Latest IRS Inflation Updates Mean for Your Business in 2024?
The Internal Revenue Service (IRS) has recently unveiled the annual inflation adjustments for tax year 2024, and business owners should take note of the key changes that will impact their financial landscape. Let’s dive into the highlights outlined in Revenue Procedure 2023-34. In this guide, we’ll explore what the latest IRS Inflation Updates mean for your business in 2024.
1. Standard Deduction Increases
For married couples filing jointly, the standard deduction for tax year 2024 rises to $29,200, reflecting a $1,500 increase from 2023. Single taxpayers and those married filing separately will see an increase to $14,600, a $750 bump, while heads of households can claim a standard deduction of $21,900, up by $1,100.
2. Marginal Tax Rates
The top tax rate for individual single taxpayers with incomes over $609,350 ($731,200 for married couples filing jointly) remains at 37% for tax year 2024. Various other rates apply to different income brackets, with the lowest rate at 10% for individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
3. Alternative Minimum Tax (AMT) Exemption
The AMT exemption amount for tax year 2024 is $85,700, starting to phase out at $609,350 ($133,300 for married couples filing jointly). Compared to 2023, this represents an increase from $81,300, with a higher phase-out threshold.
4. Earned Income Tax Credit (EITC)
The maximum EITC amount for tax year 2024 is $7,830 for qualifying taxpayers with three or more qualifying children, up from $7,430 in 2023.
5. Changes in Fringe Benefits
For the taxable year beginning in 2024, the monthly limitation for the qualified transportation fringe benefit and qualified parking increases to $315, a $15 rise from the 2023 limit.
6. Health Flexible Spending Arrangements (FSA) and Medical Savings Accounts (MSA)
Contributions to health FSAs have a new limit of $3,200 for tax year 2024. For MSAs, annual deductibles and out-of-pocket expenses have increased, reflecting adjustments to $2,800 and $5,550 for self-only coverage and $5,550 and $10,200 for family coverage, respectively.
7. Other Notable Adjustments
- The foreign earned income exclusion is now $126,500 for the tax year 2024, up from $120,000 in 2023.
- Estates of decedents who died in 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for those who died in 2023.
- The annual exclusion for gifts has risen to $18,000 for the calendar year 2024, up from $17,000 in 2023.
- The maximum credit allowed for adoptions for tax year 2024 is now $16,810, increased from $15,950 in 2023.
Items Unaffected by Indexing
Certain items remain unchanged:
- The personal exemption for tax year 2024 stays at 0.
- The limitation on itemized deductions is absent for 2024, continuing the trend since 2018.
- The modified adjusted gross income amount for the Lifetime Learning Credit is not adjusted for inflation.
Understanding these adjustments is crucial for business owners to make informed financial decisions and ensure compliance with the evolving tax landscape. Stay informed, plan ahead, and consult with a tax professional to navigate the complexities of tax year 2024.
If you’d like to discuss a strategy for your small business and help you with your taxes, Book your consultation with us today!
